Here are German companies flirting with China
German companies, starting with BASF and Volkswagen, have no intention of detaching themselves from China. The New York Times article
Some are expanding into China, reluctant to leave a huge market they need to fund operations at home.
As Washington seeks to cut economic ties with Beijing, two powerful engines of the German economy, Volkswagen and chemical company BASF, are expanding their massive investments in China. Writes the NYT .
Volkswagen, which has more than 40 plants in China, has announced a new effort to tailor models to Chinese customers' wishes, with features like in-dash karaoke machines, and will invest billions in local partnerships and manufacturing sites. All of this is part of a project that the German automaker unveiled last year: "In China for China".
BASF, with 30 manufacturing plants in China, is moving forward with plans to spend 10 billion euros ($10.9 billion) on a new chemical manufacturing complex that would rival the huge Ludwigshafen headquarters complex in size , covering approximately four square miles.
Across Germany , executives are aware that such investments run counter to US efforts to economically isolate China. However, they argue that revenue from China is essential for their companies to thrive and grow in Europe.
Martin Brudermüller, CEO of BASF, said the gains from China enabled the company to effectively offset losses due to high energy costs and strict European environmental standards.
“Without the business in China, the necessary restructuring here would not have been possible,” Brudermüller told reporters at the company's annual earnings conference in February. “Name me one investment in Europe where we could make money.”
Volkswagen executives privately admit the automaker is in a similar situation. High energy and labor costs have made the company heavily dependent on sales in China to help support operations in Europe.
Now the increasingly close trade ties are under scrutiny in Berlin. For months, at the urging of Chancellor Olaf Scholz, a political proposal has been making the rounds of German ministries which aims to reset the country's relations with China, its main trading partner. The goal is to strike a balance between diversifying Germany's ties in Asia to avoid dependence on Chinese imports, while recognizing the importance of doing business with China.
The Biden administration has pledged to make the United States more competitive with China by expanding American infrastructure and manufacturing, rather than negotiating new trade deals. German lawmakers and business leaders have made it clear that their relationship with China is more nuanced: open to vigorous trade while seeking to diversify into other Asian markets.
It's a policy that is developing after a difficult year when Russia cut off natural gas supplies to Germany, a move that reminded lawmakers of the costs of relying on autocratic nations for materials essential to its industrial backbone. In the case of China, a major problem is Germany's dependence on its imports.
Germany depends on China for supplies of essential technology products, including cell phones and LEDs, and raw materials, including lithium and rare earth elements. These are key elements of Germany's plans to transition to cleaner energy and transport.
This dependency needs to be considered carefully as Germany strategically thinks about its future relationship with China, said Katrin Kamin, director of the Kiel Initiative in Geopolitics and Economics. Reducing ties any time soon is not a reasonable option.
“Germany cannot simply relax its relations with China in the short term,” Kamin said. “The addictions are too big to do that.”
The European Union has had a more difficult relationship with China. A trade and investment deal between the bloc and China, the result of years of talks and approved in 2020, was shelved less than a year later after Beijing imposed sanctions on EU lawmakers for criticizing the treatment of the China to the Uyghur population. The agreement would have made it easier for the companies to operate on each other's territory.
Last week, Ursula von der Leyen, president of the European Commission, traveled to Beijing with French President Emmanuel Macron as part of an effort to "rebalance" economic ties with China. The president called for the resumption of trade talks, but stressed obstacles such as the support China offers to its domestic producers and the restrictions it imposes on foreign companies.
“China is a crucial trading partner, but European companies face many discriminatory obstacles,” von der Leyen said after meeting with some organizations in Beijing. “European companies have a lot to offer China. But they need a level playing field to invest and deliver their goods and services."
He told reporters that the stalled trade deal was not discussed during the trip with Chinese leader Xi Jinping.
With sales of 297.9 billion euros last year, China was Germany's largest trading partner for seven years in a row. But Germany's trade deficit with China has become increasingly lopsided, a trend that has exacerbated amid the supply chain disruption caused by the coronavirus pandemic. Last year, imports from China increased by a third to 191 billion euros, while exports grew by just 3 percent to 107 billion euros.
One sector where Germany has long dominated ties with China is the automotive industry. German automakers, including BMW and Mercedes-Benz, sell about a third of all vehicles they produce in China, surpassing sales of all of Western Europe. But recent data shows that Germans appear to be losing their grip on the Chinese market, especially as domestically-made EVs grow in popularity.
Auto insurance records show that just 2.4 percent of all EVs sold in China last year were made by Volkswagen, while BMW and Mercedes failed to reach even 1 percent, according to the business daily. German Handelsblatt. By comparison, German brands continue to dominate the Chinese market for combustion engine vehicles, but their popularity is giving way to electric vehicles.
Perhaps worryingly, Chinese electric brands, such as BYD and Nio, are entering the German market, posing a threat to German automakers in their home territory.
In a clear sign of his priorities, just months after taking over as Volkswagen chief executive in September, Oliver Blume spent weeks touring China and returned vowing to strengthen his company's partnerships there.
“We need to work much more closely with our local partners to listen to customers in the China region,” Blume told reporters at the company's annual meeting last month. “This will be part of the 2030 strategy.”
A study by the Kiel Institute has shown that decoupling from China would be very costly for all of Europe, but especially for Germany, given the strength of its economic ties. The institute's calculations, based on 2019 gross domestic product, showed that Germany could lose more than €131 billion in income. And it could be even more in the event of retaliation from China.
Berlin would like to avoid another round of upheavals like those it experienced after Russia's invasion of Ukraine, which led to an energy war that cost Germany its supply of affordable natural gas. That means continuing to balance economic interests with security concerns, Jörg Kukies, Scholz's economic adviser, told a meeting of German and American business leaders.
“We want to have a positive approach towards China,” Kukies said. “Not an anti-China approach”.
(Excerpt from the press release of eprcommunication)
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/germania-aziende-cina/ on Sun, 16 Apr 2023 05:06:37 +0000.